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Carbon falls after ENVI scraps back-loading vote

25 Feb 2013 17:52:28 | edcm

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Carbon prices plummeted on Monday after an EU official dashed hopes for a quick back-loading approval process.

Last week, the European Parliament's environment committee (ENVI) backed the European Commission's proposal to back-load some 900m EU allowances in Phase 3 of the bloc's Emissions Trading System (EU ETS) (see EDCM 19 February 2013).

But the committee did not vote in favour of starting "trilogue" negotiations a process of meetings comprising the parliament, the European Council and the Commission. An immediate trilogue process would probably mean a swifter and smoother approval process for the proposal.

A vote was expected for Tuesday on whether to give ENVI chair Matthias Groote a mandate to start trilogue proceedings and negotiate with member states.

Uncertainty over whether the vote would go ahead had already gripped the market, when Groote announced in a tweet, less than two hours before the close, that it was off the table.

"Back-loading is not part of the [ENVI] meeting. All reports to the contrary are incorrect," he said.

Politics and prices

One analyst at a broking firm told ICIS that Groote had tried to secure enough support for a positive mandate, but decided to omit the vote from the agenda when he failed to secure sufficient backing.

Only earlier that day, the European Parliament had said that a decision on the vote was still outstanding.

Market sources polled by ICIS in the first half of the session expected the vote to go ahead, and if it did, to be positive.

"Looking at the majority that supported the vote last week, I don't see why the mandate should not pass," one source said.

However, others warned that if the vote did not happen, this would put pressure on prices.

"If the fast-track vote happens and passes tomorrow, then we expect an uptick in prices, because it reflects political confidence. If no vote occurs, we expect prices to test €4.30/tonne of CO2 equivalent this week," carbon analyst Matthew Gray, of London-based investment bank Jefferies Bache, commented in a note on Monday.

"Price reaction shows that there was still a slight hope among market participants [that the vote would go ahead], but as soon as Groote twittered, they let the price plummet," another source said.

Opposition to trilogue

Most industrial sectors covered by the EU ETS have lobbied for the proposal to be voted in plenary, or a full session of the European Parliament, before opening trilogue negotiations.

The European Alliance of Energy-Intensive Industries (AEII) - an association of lobby groups including Eurofer (steel), Cembureau (cement) and Cefic (chemicals), which is openly against the proposal - wrote to members of the European Parliament (MEPs) on 21 February calling for a plenary debate on it.

AEII pointed to significant differences between the view of the ENVI and the Industry, Research and Energy (ITRE) committees. The ITRE committee sent carbon prices crashing in January when it voted against the proposal (see EDCM 24 January 2013).

"This highlights the wide differences in views and the importance of having a full, democratic and transparent plenary debate on this crucial issue for the EU. The plenary debate, followed by a vote, would allow all MEPs to express their views and provide required political support for the final decision before negotiations with the Council Presidency and the Commission, which might commit Parliament, are opened," AEII wrote to MEPs.

A plenary vote is scheduled for 15 April. Silvia Molteni/Marie-Louise du Bois

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